SEC revolving door fuels Wall Street’s arrogance

Former Securities and Exchange Commission director of enforcement Robert Khuzami took a step through Washington’s revolving door on Friday, departing his post as one of Wall Street’s top enforcers en route to the private sector, where he is expected to reap millions.

The move coincides with the release of a new report on Monday claiming that the steady flow of officials from the SEC into top corporate jobs is feeding a regulatory culture of weak law enforcement and preferential treatment for big banks.

Information obtained by Project on Government Oversight, a non-partisan investigative watchdog, under freedom of information shows that former SEC employees routinely help corporations influence rule-making, counter the corporate watchdog’s investigations of suspected wrongdoing, soften the blow of SEC enforcement actions, block shareholder proposals and win exemptions from federal law, the report said.

By way of example, it says that in three cases against UBS, after enforcement actions threatened to limit the giant Swiss bank’s ability to issue new securities, the bank hired former SEC lawyers.

Each time, the report says, the agency granted relief. (The S.E.C. has defended such decisions as being in the best interest of investors, who might suffer if an otherwise stable bank was suddenly unable to sell securities.)

The watchdog report provides only anecdotal evidence of bias and does concede that the SEC adopted checks on influence peddling. Nonetheless, it raises questions about the rising consequences of the revolving door.

From 2001 to 2010 more than 400 SEC alumni filed almost 2000 disclosure forms saying they planned to represent an employer or client before the agency. Former SEC employees are only required to file disclosures for the first two years after leaving the agency.

William Baker III, a former associate director of enforcement and now a lawyer at Latham & Watkins, was the top filer, submitting 46 notices.

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The report also found that former employees had helped companies avoid certain penalties and thwart regulatory initiatives, including an effort by Mary Schapiro, then SEC chairwoman, to reform money market funds, a sector central to the financial crisis.

The report noted that former SEC employees had lobbied to block the plan, and added that Luis Aguilar, an SEC commissioner who previously was an executive at Invesco, a money management firm, played a role in “derailing" Ms Schapiro’s effort.